Main FX topics in Asia: Trade Talks, BoJ Monetary Policy, NZ CPI

New Zeland CPI came out above the expectation. A bullish impetus on NZD.

Today’s print for CPI inflation was below the 0.2% q/q rise incorporated in the RBNZ’s November MPS. But the mix matters. Non-tradable inflation was well above the RBNZ’s expectation of 0.4% q/q, although countering this there were some downwards revisions over history (due to the reallocation of international pre-paid holidays from non-tradable to tradable CPI). The RBNZ will take comfort from non-tradable inflation holding up, but will be vigilant that weakness in tradable inflation might flow through to inflation expectations

Result: NZD Positive against All Currencies

BoJ left policy unchanged in a 7-2 vote

BoJ left policy unchanged in a 7-2 vote, but cut the FY2019 core CPI forecast to 0.9% from 1.4% in what appears to a larger than expected slashing of the forecast and downgraded its assessment of current CPI.

BoJ noted that the CPI forecasts exclude the free education effect, which effectively points to even lower inflation when implemented. GDP for the fiscal year 2018 was also cut to 0.9% from 1.4% previously while FY 2019 GDP was revised marginally higher to 0.9% vs. 0.8% previously, likely due to a lower base in the previous year than any expectation of an acceleration in growth.

The large cuts in both growth and inflation estimates suggest the view that the BoJ will be in no rush to alter policy over coming months

US-China Trade Talks

Amid fresh Chinese stimulus talks and the US top diplomat Kudlow’s comments refuting the FT reports that Trump turned down trade talks with Beijing, the risk appetite markets received a boost across the financial markets in Asia.

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